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Wed, Jul 23, 2008 - Page 10 News List

ADB cuts growth forecast for developing economies

‘BEHIND THE CURVE’The bank warned that inflation could eat into economic growth and urged more decisive action and policy responses to contain it


The Asian Development Bank yesterday cut its growth forecast next year for the region’s developing economies to 7.6 percent, citing tighter credit and soaring food and energy costs.

The bank trimmed its previous growth forecast from April of 7.8 percent, and said actual growth could be lower if either inflation or the US economic slowdown were worse than expected.

It maintained its growth forecast this year for the region at 7.6 percent, with China set to dip below five years of double-digit growth to 9.9 percent this year and 9.7 percent next year.

However, it sharply raised its inflation forecast for East Asia to 6.3 percent this year, from 5.1 percent in its April outlook. Inflation averaged 3.9 percent in East Asia last year. Vietnam would be the worst off with 19.4 percent inflation this year and 10.2 percent next year.

The bank urged a “more decisive tightening of monetary policies” to fight the scourge of inflation and prevent it eating away the fruits of speedy economic growth.

It said many governments were “behind the curve” on the issue and warned the inflation problem was deepening.

“The risk of inaction is rising, and the region’s monetary authorities need to formulate more forceful and preemptive policy responses,” the ADB said.

While economic growth in developing Asia in the first three months of the year was stronger than expected, it eased in the second quarter as slower growth in industrialized nations began to bite, the bank said.

Growth in the industrialized economies of Hong Kong, South Korea, Singapore and Taiwan would slow to 4.7 percent this year amid weaker demand for their exports, before recovering to 4.9 percent next year, the bank said.

Aggregate economic growth in the other large economies of the ASEAN should ease to 5.5 percent this year, with prospects in Indonesia, Malaysia and the Philippines moderating, it said.

The region’s developing nations should weather the storm “relatively well,” the ADB said, adding that central bankers were faced with a dilemma in trying to keep inflation in check without depressing the economy.

“Rapidly rising inflation threatens to dampen consumer spending and risks a wage-price spiral that could derail the region’s recent solid growth,” the bank said.

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